So, what happens when you discover that your spouse has been having an affair (or, more precisely, your spouse’s avatar has been having an affair) on Second Life? Well, naturally: tell him on Facebook that you want a divorce.

At the Pennsylvania Bar Association Family Law Section Winter Meeting 2009, which took place at the William Penn Hotel in Pittsburgh this weekend, a panel of judges, lawyers and CPAs discussed hot topics in family law and business valuation. One of the hot topics, presented by Pittsburgh valuation professional Richard F. Brabender, was double dipping. Specifically, this seminar discussed the theoretical/academic argument (which I have advocated in this blog) that a double dip exists where capitalized income which has been divided between the spouses as marital property is also counted as income for child support or alimony purposes.

Clearly, if there is a pension in pay status which is valued on the date of trial, and the pension annuity benefit is counted as income for calculating post-divorce alimony, the court has divided the same stream of income twice – a “double dip.” This same problem exists where business profits have been capitalized as part of the valuation process and also included in the business owner’s net income for child support and alimony purposes.

The twist that Dick Brabender brought to light in his presentation was the double dip that may occur during the separation, where the owner’s compensation substantially exceeds a market salary. For instance, if a business owner is drawing $500,000 per year from the business, but could hired a newly-minted MBA (because we all know how they can improve any business) to do the owner’s job for $70,000 a year, then the owner is receiving excessive compensation of $430,000 per year. Why shouldn’t the business owner’s spouse get 50% of the excess compensation during the separation period as an advance against his or her share of the marital property (assuming the business is entirely marital), subject to re-allocation at the time of trial? (The excess compensation would then be excluded from both spouses’ incomes for support purposes.) This is the likely result if there were a marital pension in pay status, which could be divided 50/50 during the pendency of litigation as an advance of marital property.

In order to accomplish this interim division of the business income stream, the court would have to conduct a hearing to determine that the owner’s compensation were excessive, something the court is unlikely to decide in motions court. Moreover, the excess compensation hearing would have to occur prior to the support or maintenance hearing so that there were no inconsistencies between the support order and the property advance. One of the panelists, eastern Pennsylvania lawyer Mark Ashton, suggested that the court would also have to look at whether the rents being paid by the business to the owner were consistent with market levels, whether the owner were working more than 40 hours a week, etc. Suddenly a simple hearing to determine a property advance has become a multi-day trial with multiple expert witnesses!

Another panelist, Jay Blechman, suggested an alternative: a lookback at the time of the final property division trial. In other words, if it were proven at the end of the case that the owner’s compensation during the pendency of litigation was above-market, then the court could re-designate the excessive income as marital property and award an incremental amount to the owner’s spouse. In Pennsylvania, a business owner’s spouse without children would receive 40% of the income stream as support or maintenance, but if the excess compensation were marital property, the spouse might 50%, 55% or more. So, Jay Blechman suggested that the business owner’s spouse could get 40% during the pendency of the case, and an additional 10%, 15% or more of the excessive compensation at the end of the case.

A recent news item by Jen Chung on Gothamist reports that a New York doctor is demanding that his estranged wife return the kidney he donated to her during their separation…. or pay him its value of $1.5 million.

Newsday reports that Batista married wife Dawnell in 1990 and that he donated the kidney in 2001. According to Batista, their marriage was on the rocks then, but “My first priority was to save her life. The second bonus was to turn the marriage around.” Dawnell Batista filed for divorce in 2005. Dr. Batista told
WCBS 880, “She had an affair, then would not reconcile, then handed me divorce papers as I was going into surgery trying to save another person’s life.

My question is, how did Dr. Batista determine the value of the kidney?

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From an article called, “January 12 is D-Day for Divorce” by Emily McCombs

Tis the season to be jolly! But did you know that it’s immediately followed by the season to ditch that spouse who’s been weighing you down through the last month of eggnog and holiday parties? Lawyers in the U.K. estimate more couples will decide to divorce on January 12th this year than any other day. While January is always a popular month for splitting couples, this year experts expect that the recession will have led many unhappy unions to stick it out through one more Christmas of shared finances before calling it quits, which they’ll do the Monday after their children return to school. Says U.K. lawyer Shelley Hesford, “We get more calls in the first few days of New Year from couples wanting to separate or divorce than any other time of the year – and the reasons behind divorce are often, though not always, based on money problems having pushed a relationship to breaking point.”We can’t help but wonder if the previous few weeks spent stuck in close proximity with your spouse’s annoying in-laws might also have something to do with it. Either way, if your New Year’s resolution is to lose some weight in the approximate poundage of your unwanted partner, you might want to give your lawyer a heads-up before he gets too overloaded.

It’s been a while since I have posted, mainly because I am planning a relaunch of this blog with new features and new contributors. Watch this space for a new, exciting update coming in January! Happy New Year!

A recent edition of Value Matters, a periodical published by Mercer Capital Group, illustrates the reasons for having a buy-sell agreement and what options might be available. Buy-sell agreements are advisable for the same reason as prenuptial agreements: they structure the consequences of a possible future incident such as shareholder disharmony, death, or divorce.

The valuation provisions of a buy-sell agreement, which may dictate the share price in the event of partner withdrawal, death or divorce, must reconcile competing concerns. On one hand, a book value formula might be desirable in the event of divorce or the buyout of a withdrawing shareholder. On the other hand, a below-market share price may result in excessive estate taxes for the beneficiaries of a deceased shareholder. An agreement can provide different formulas for different situations, but must presumably reconcile those inconsistencies or suffer close scrutiny of the courts or IRS.

Trigger events, valuation method, and purpose are some of the important elements of a successful buy-sell agreement. Extensive details are provided, presumably, by Chris Mercer’s book, Buy-Sell Agreements.